Managerial Accounting Smartbook 6

Given sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000, the result is a ______.

operating loss of 10,000

The single point where the total revenue line crosses the total expense line on the CVP graph indicates ______.

1. break-even point 2. profit equals zero

CVP analysis focuses on how profits are affected by ______.

selling price, total fixed costs, unit variable cost, mix of products sold, sales volume.

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ______.

$184,000-$85,000=$99,000

CVP is the acronym for ___-___-___

Cost-Volume-Profit

Which of the following are assumptions of cost-volume-profit analysis? (select all that apply)

1. In multi product companies, the sales mix is constant. 2. Costs are linear and can be accurately divided into variable and fixed elements.

To calculate profit, multiple the ___ per unit by sales volume and subtract total fixed cost.

profit

A company has reached its break-even point when the contribution margin ___ fixed expenses.

total

The break-even point is reached when the contribution margin is equal to ______.

total fixed expenses

when constructing a CVP graph, the vertical axis represents ____.

Dollars

The contribution margin statement is ordinarily used by those ______. Multiple choice question.

Inside the company only

The contribution margin statement is primarily used for ______.

Internal decision making

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______.

Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000

CVP analysis is based on some ___ that may be violated in practice, but the tool is still generally useful.

assumptions

Which of the following items are found above the contribution margin on a contribution margin format income statement?

sales, variable expenses

The contribution margin equals sales minus all ______ expenses.

variable

When a company only produces a single product, the total variable cost can be calculated with the equation ______.

variable cost per unit multiplied by quantity of units sold

The contribution margin is equal to sales minus ______. Multiple choice question.

variable expenses

Profit = (selling price per unit × quantity sold) - (___ expense per unit x quantity sold) - ___ expenses

variable, fixed

The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit. (select all that apply)

volume selling price cost

Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is $4 per unit, and the fixed expenses total $632,000. Company A's profit (loss) is ______.

$168,000 Profit = 200,000 × $4 - $632,000 = $168,000.

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

$180,000Contribution margin = 20,000 x ($20-$11) = $180,000

Net operating income equals ______.

(unit sales - unit sales to break even) × unit contribution margin

Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, ______. (select all that apply)

-Profit = $875-Total variable costs = $350-Total sales = $1,925 Total sales = 35 × $55 = $1,925.

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has ______.

1. reached the break-even point 2. a contribution margin equal to fixed costs

Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be ______.

130,000 Net income = (25,000 - 15,000) × ($25 - $12) = $130,000.

A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $

5000(10-6)x10000 - 35000 = 5000

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach. Multiple choice question.

Contribution Margin

After reaching the break-even point, a company's net operating income will increase by the ___ per unit for each additional unit sold.

Contribution margin

To calculate the effect on profits of a planned increase in sales, you need the increase in units sold, any change in fixed costs and the ______.

Contribution margin per unit

Simple CVP analysis can be relied on for changes in volume outside the relevant range.

False- The CVP model must be adjusted for activity levels outside the relevant range.

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was ______. Multiple choice question.

Profit = 300 × ($20 - $7) - $1,700 = $2,200.

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______.

The contribution margin per putter is $65 The sale of 12,000 putters results in net operating income of $380,000.

When a company sells one unit above the number required to break-even, the company's net operating income will ______.

change from zero to a net operating profit

The vertical distance between the total revenue line and the total expense line on a CVP graph represents the total ______.

profit or loss

The contribution margin as a percentage of sales is referred to as the contribution margin or CM ___.

ratio

To prepare a CVP graph, lines must be drawn representing total revenue, ______. Multiple choice question.

total expense, and total fixed expense

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit ___ ___.

contribution margin

To simplify CVP calculations, it is assumed that ______ will remain constant.

selling price

Pretty in Pearls sold 95 necklaces last month. If variable cost per unit is $40 and fixed costs total $3,085, the company's total variable cost was ______.

$3,800 Total variable cost = 95 X $40 = $3,800

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is ______.

$55 Unit contribution margin= $90 -$35 = $55.

At the break-even point ______. (select all that apply)

net operating income is zero, total revenue equals total cost

Contribution margin is first used to cover ___ expenses. Once the break-even point has been reached, contribution margin becomes ___.

Fixed expenses, profit

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n) ______.

decrease in the unit variable cost.

True or false: CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.

CVP is the acronym for cost, volume, profit and investigates how profit is affected by selling prices, costs and sales mix.

If the total contribution margin is less than the total fixed expenses, a ______ occurs.

net loss